Flip-flop on $3.7b Maybank deal: Analysts fear fallout

KL central bank's 11th-hour block could hurt other Malaysian firms with interests in Indonesia

NO GO: State-controlled Maybank announced on Tuesday that approval for it to acquire Bank Internasional Indonesia had been revoked.

THE move by Malaysia's central bank to block Maybank's purchase of an Indonesian bank could trigger an awkward diplomatic situation with Indonesia, say analysts and bankers.

They added that Bank Negara's shock decision on Tuesday night could also raise challenges for other Malaysian firms operating in Indonesia's highly regulated economy.

'This whole episode could have been handled better,' said a director of a Malaysian financial institution with operations in Indonesia.

'This will only add to the many problems we already have to contend with in Indonesia.'

State-controlled Maybank announced on Tuesday that Bank Negara had revoked an approval it granted in March for the US$2.7 billion (S$3.7 billion) acquisition of Bank Internasional Indonesia (BII).

Maybank had agreed to buy 56per cent of BII from Sorak Financial Holdings, a firm controlled by Temasek Holdings. It would pay US$1.5 billion and then tender for the remaining 44 per cent for about US$1.2 billion.

Maybank told the Malaysian stock exchange on Tuesday that Bank Negara was concerned about a new Indonesian takeover law.

This would have required Maybank to sell down its BII stake to 80 per cent over the next two years. Bank Negara feared this could lead to losses for Maybank.

What remains unclear is whether Bank Negara's decision will kill off the proposed transaction.

It it does, Temasek and its partner in BII, South Korea's Kookmin Bank, stand to pocket the US$150 million Maybank lodged as a deposit, say bankers close to the situation.

Temasek yesterday said it had received notification from Maybank on the matter.

'This is an unfortunate development. We are in consultation with our co-investment partner, Kookmin Bank,' said Ms Cheo Hock Kuan, director of Fullerton Financial Holdings, a Temasek unit.

Bankers said Temasek would have few problems finding new suitors for BII, which has a domestic network of 230 branches and about 700 automated teller machines.

But there is little upside for Malaysia. Bank Negara's decision has not gone down well in Indonesia.

Mr Fuad Rahmani, the head of Indonesia's capital market watchdog Bapepam, told The Straits Times by telephone: 'The regulation requires divestment in two years, so if the bank performs well then its share price will obviously increase and they can sell with gains.

'Unfortunately, their prediction is that they will incur a loss. That's speculative.'

Many independent analysts agree, noting that Malaysia's regulators and companies should take a longer view of investments in Indonesia.

'The chances that the price (for BII) could be higher and the rules could be relaxed are quite high in this case,' said Mr Rizal Ramli, a prominent Indonesian economist.

Many private economists and bankers have also questioned Bank Negara's 11th-hour decision, which appeared to be motivated by the financial impact the deal could have on Maybank.

'A regulator should be more concerned about the soundness of the deal from a legal standpoint and maybe on issues of national importance. The near-term financial impact of any deal is a risk that has to be borne by the private sector,' said the chief executive of a Malaysian telecommunications group with interests in Indonesia.

This executive and several other bankers fear the BII flip-flop could pose headaches for other Malaysian firms with Indonesian interests.

-TMB